Valuation of Flexible Leases for Corporate Tenants Facing Uncertainty in Their Required Work Space
Valuation of Flexible Leases for Corporate Tenants Facing Uncertainty in Their Required Work Space

Summary/Abstract: A valuation approach is presented to price flexible leases with expansion, contraction, and/or cancelation options from the corporate tenant perspective. This model uses the real option valuation approach and determines the flexibility value or the option premium of a lease. This premium is the maximum amount of money that the tenant is willing to invest in incorporating a specific flexible feature in the leasing arrangement. Our model considers uncertainty in the rental market, as well as uncertainty about the firm’s required workspace in an integrated valuation framework.

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